Food prices push retail inflation to 8-month high of 7.34% in Sept

Inflation above RBI's comfort zone of 6% for six straight months, Q2 inflation slightly higher than MPC's projection, MPC may refrain from cutting rate in December policy too

Pushed up by the double-digit food inflation, the retail price inflation rate rose to an eight-month high of 7.34 per cent in September from 6.69 per cent in August. This was the sixth consecutive month that the inflation rate remained above the Reserve Bank of India’s (RBI’s) comfort zone of 6 per cent. 

As a result, the central bank’s monetary policy committee (MPC) might not cut the repo rate in its December review as well.

In fact, the consumer price index (CPI)-based inflation rate stood moderately higher at 6.92 per cent in the second quarter (Q2) of 2020-21 than the 6.8 per cent projected by the MPC in its latest policy review. 

Food inflation rose to a seven-month high of 10.68 per cent in September, after remaining below the double-digit mark for four months. It stood at 9.05 per cent in August. 

Rahul Gupta, head of research — currency, Emkay Global Financial Services, said, “The increase in September print is higher than what the market expected as food prices still remain a concern on lingering supply disruption. Unless the inflation falls below the higher band of six per cent, we don’t expect RBI to cut rates despite Governor (Shaktikanta) Das stating to ‘look through inflation’”. 

However, he said inflation may fall back to the tolerance band of 2-4 per cent as the supply shocks dissipate with further unlocking. RBI expects CPI inflation to fall in the 2-6 per cent target in the second half of FY21.

Nish Bhatt, founder and CEO of Millwood Kane International, an investment consulting firm, said the rise in inflation will affect RBI’s ability to act on rates as it would like to see the inflation rate drop below six per cent on a durable basis.

Food inflation rose because vegetable prices saw inflation rate of 20.73 per cent in September from 11.41 per cent the previous month. 

Meat and fish prices, too, saw a jump for rising 17.60 per cent and 15.60 per cent in this period, respectively. Egg prices increased to 15.47 per cent from 10.11 per cent in August. 

Transport and communication saw inflation rate of 11.50 per cent, up from 11.05 per cent. For personal care and effects, the rate reduced but remained elevated at 12.31 per cent in September against 14.45 per cent in August. 

Health saw inflation rise to 4.90 per cent from 4.71 per cent.  Fuel and electricity gave some relief to consumers as the inflation rate fell to 2.87 per cent from 3.10 per cent. 

Devendra Pant, chief economist at India Ratings, said base effect and normalisation of supply will provide some comfort on inflation from October.